What Bitcoin futures could mean for the crypto economy
Bitcoin Gains Legitimacy
Bitcoin continues to captivate the interest of the financially-minded as well as curious and often skeptical bystanders. Bitcoin is well on its way to becoming more than just a hot topic.
The cryptocurrency’s legitimacy, along with its price, is on the rise. This month, the US Commodity Futures Trading Commission announced that Bitcoin futures have been self-certified by the Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME). This announcement was a significant milestone for Bitcoin because these two institutions are trusted pillars within the financial industry.
What is a Futures Contract?
Futures are contracts that receive their value based on an overall performance of an asset. That asset can be anything from oil to corn. Futures contracts are simply agreements to sell or buy an asset at a price that has already been agreed upon, at some time in the future. Futures contracts are often used for security or speculation.
In the case of Bitcoin futures, if an investor believes the price of Bitcoin will be elevated to a certain price in the future, that investor can use this prediction to their advantage. The investor can sign a futures contract for Bitcoin at a lower price than their prediction, then when the price is higher than their futures contract price agreement, they can profit from the price difference.
Futures are appealing to investors for their leverage, meaning investors can trade on multiple Bitcoins while only actually paying for a portion of them. While leverage is a benefit, it can also be dire if played wrong. In the same way that you can amplify your profit potential betting on futures, you can lose a large amount very quickly.